Leveraged ETFs: The risks and the rewards

A leveraged ETF is an exchange traded fund that aims to amplify the return of its underlying benchmark. CNBC's Bob Pisani tells investors what they need to know before buying in.

With the rebound on Wall Street since the 2008 financial crisis, a growing number of complicated and potentially risky products are being aimed at Main Street.

One such vehicle is leveraged ETFs, which make up about 2½ percent of the $2.5 trillion global market for exchange-traded funds.

These types of funds are financially engineered with "leverage" from derivatives and debt. They can supercharge the returns of their underlying benchmarks. But they can also amplify the losses.

ETFs track the performance of an index, like the S&P 500, but trade like stocks.

Watch the above video for a detailed explanation on how leveraged ETFs work and the risks they could pose.

Fink warning on leveraged ETFs

Adam Jeffery | CNBC

Larry Fink

BlackRock Chairman and CEO Larry Fink—who runs the world's largest asset manager and ETF provider—recently said structural problems with leveraged ETFs have the potential to "blow up the whole industry one day."

Sponsors of leveraged ETFs and related products called his remarks an exaggeration.